Quixtar Reaches Settlement With Former Distributors
November 03, 2010 06:37 AM
Quixtar Inc., a former subsidiary of Amway Corp., and the law firms of Boies, Schiller & Flexner and Gary Williams, Finney, Lewis, Watson & Sperando, P.L. today announced they have settled, subject to court approval, all claims related to a class action lawsuit brought on behalf of three former Independent Business Owners (IBOs). The parties released the following statement:
We are pleased that we have been able to settle this case at this juncture, which follows four years of litigation and extensive mediation sessions before a former judge, with the active participation of former IBOs who are named plaintiffs, Quixtar and counsel. This settlement also recognizes Quixtars ongoing commitment to transform the manner in which it conducts its U.S. business, that together with the injunctive and monetary relief provided for in the settlement, will provide substantial benefits to the Plaintiff Class of current and former Quixtar IBOs.
from court filing in California
The Settlement Agreement
The Settlement Agreement provides economic relief for the Settlement Class through cash and free products, and it provides injunctive relief directed at ensuring the continuation and extension of changes in Quixtars business model that already had commenced and that, indeed, were prompted in significant part by this litigation. The economic value of those aspects of the Settlement that can be quantified is an estimated to be $155 million, consisting of $34 million in a cash fund, $21 million in free products, and injunctive relief that Quixtar has estimated to be valued at $100 million. Taken together, virtually every aspect of the problems identified in the Complaint is addressed by the Settlement Agreement.
1. Economic Relief
There are three ways in which Settlement Class Members are eligible to receive economic relief, two of which are directed at former Quixtar IBOs. First, up to $5 million will be available to refund the registration fees paid by any IBO who left the Quixtar program by the end of their first year. This part of the economic relief is intended to compensate individuals who entered the program and, upon determining that it was not what they expected, quickly exited. These former IBOs will be able to receive a cash refund of their registration fee, which usually was in the amount of approximately $50. Up to 10,000 refunds may be provided to Settlement Class Members before any pro-ration of the refund amount.
Second, former IBOs who verify that they spent at least $100 on books, tapes and promotional meetings will be entitled, without additional documentation, to receive $100 in free Quixtar products. This part of the economic relief is intended to compensate IBOs who spent money on motivational tools from which they are not receiving any benefit since they no
longer are part of the Quixtar program. Claimants will be able to choose from a variety of product bundles, ranging from skin care products to vitamins and nutritional supplements. The total value of the free products will be $21 million, which would be sufficient to provide over 20,000 qualified claimants with free product benefits. If more qualified claimants apply, the product value per package will be adjusted; if fewer qualified claimants apply for free products, a procedure is established in the Settlement Agreement so that the balance is distributed to benefit the class, or distributed cy pres
Third, Settlement Class Members (both former and current IBOs) who can establish that they suffered special hardship in the form of financial loss resulting from their participation in the Quixtar IBO program will be eligible for a cash payment of not more than $15,000. This provision is intended to compensate Settlement Class Members who participated in the program for a substantial period and who suffered financial losses from that participation. Those losses include purchasing a large amount of Quixtar products that were not sold or returned, spending a substantial amount of money on BSM, or suffering other demonstrable financial loss of at least $2,500. The Settlement Agreement provides for a streamlined claims process to be handled by a Special Master, to be appointed by the Court, who will review and determine (with finality) whether and how much should be paid to a Claimant from the fund. If the total of accepted Claims exceeds the available cash funds for these payments, a pro-ration of awards will be made.
2. Injunctive Relief
The Settlement Agreement provides for substantial injunctive relief to benefit both current and future IBOs. These elements of injunctive relief are intended to extend and perpetuate changes that Quixtar instituted, in large part as a result of this litigation, to transform the focus of its U.S. business from recruitment of additional distributors to merchandising products. Quixtar has estimated that the refund, training, and price reduction provisions will result in $100 million in future benefits to the Class. These provisions will be in the form of a Consent Judgment which will remain in place for 4 years (except where otherwise noted). The Consent Judgment will contain several features:
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(a) Disclosure and Refund Requirements. The Settlement Agreement provides that Quixtar must disclose to new IBOs that income figures reflect gross income, not net income after expenses; provide access to a price lists so that prospects can see the prices at which products are being offered; and inform IBOs of the availability of training in merchandising offered by Quixtar and the availability of refunds. Quixtar also is required to provide a period of at least 90 days (an increase from the current 60 days) during which new IBOs may seek an unconditional refund of their registration fee, currently set at $50. These provisions will ensure that new IBOs can correctly understand the program they are entering and have the ability, if they choose, to obtain a refund of their registration fee.
(b) Legal Compliance. Under the Settlement Agreement, Quixtar is required to comply with state and federal law by the following: (1) not compensating any IBO primarily for the act of recruiting or registering other IBOs; and (2) not requiring any IBO to purchase or maintain any specified amount of inventory. In addition, Quixtar agrees that it will emphasize consumer sales by conditioning bonus payments and other incentives, as appropriate, on IBOs achieving reported levels of sales to end-user consumers. The Settlement Agreement also requires Quixtar to maintain and enforce quality control over Business Support Materials, such as books, tapes and meetings that are: (1) sold or distributed by Quixtar IBOs and Quixtar IBO affiliated BSM Companies; and (2) sold or distributed in a manner suggesting sponsorship, affiliation, or approval by Quixtar. This Quality control shall provide that the content of such BSM complies with state and federal law. These provisions of the Consent Order create accountability by Quixtar and by Identified BSM companies (those that are obtaining a release) that the financial incentives and authorized messages they provide are consistent with both state and federal laws, which include laws that regulate multi-level marketing systems as well as various state deceptive and unfair trade practice laws.
(c) Price Reductions. Plaintiffs Complaints identified the uncompetitive pricing of Quixtar products as a reason that IBOs focused on recruitment rather than sales. Quixtar began reducing its pricing levels following the initiation of this lawsuit. The Settlement Agreement
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requires that Quixtar will maintain for twenty-four months from the Effective Date of the Settlement or from June 30, 2011, whichever occurs first, a price reduction that averages at least 5% from January 2007 pricing levels to distributors across Quixtar-branded products.
(d) Training. In the Settlement Agreement, Quixtar agrees to increase its annual IBO training budget for product, product merchandising, and business skills by an average of $7 million or more over 2007 levels for twenty-four months from the Effective Date or from June 30, 2011, whichever occurs first, with such training to be provided free to IBOs. This training will further the ability of IBOs to focus on merchandising rather than recruitment of additional distributors.
3. Enforcement and Releases
The Settlement Agreement provides that the above elements of injunctive relief shall be subject to monitoring through annual meetings between Quixtar and Plaintiffs Counsel throughout the term of the Consent Judgment. The injunctive relief aspects of the settlement are binding on the parties, including BSM Companies receiving releases or who are served with the Consent Judgment, pursuant to Rule 65. Further, it should be noted that while the Consent Judgment provides for dismissal of the complaint with prejudice, it expressly does not affect the prior ruling of this Court, affirmed by the Ninth Circuit, with respect to Quixtars alternative dispute resolution procedures, which were substantially revised by Quixtar in response to that ruling.
In return for the economic and injunctive relief provided in the Settlement Agreement, the settlement class will agree to fully release Quixtar and related parties, and those BSM Companies who sign the Settlement Agreement from all claims that were or could have been raised in the complaints in this action.
4. Fees and Costs
The Settlement Agreement provides that, in connection with final approval of the settlement, class counsel may seek an award of attorneys fees and costs from the Cash Fund based on the value of the economic and injunctive relief obtained for the Class and Defendant agrees not to object to a request that does not exceed $20 million. The Settlement Agreement
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also provides that the costs of the Claims Administrator in providing notice and handling claims, as well as the costs of the special Master in connection with the special hardship payments, and the costs of shipping and handling the free products shall be paid from the Cash Fund.